Investment Bulletin Inside Latest News The Spotlight, Cerno Capital from Longbow Capital News Longbow invests Recent Investment, Biotronics 3D £1m into The BCI Biotronics 3D The Final Word More on page 3 Longbow invests £1.8m into Longbow Portfolio Service Update Destiny Pharma Destiny Pharma was the second investment made by the Portfolio Service. Drug development More on page 2 programmes carry high levels of risk and so a lower than normal weighting was allocated to the investment initially. However, over the past three years, the risk profile has reduced substantially and we have increased the weightings within portfolios to reflect this. All our Portfolio Service investors now have holdings in Destiny Pharma (see over). We have supported three rounds of investment, amounting to £4m out of a total of £10m invested since 2005. We believe the company continues to offer excellent potential to generate strong returns PWB launches as it enters into an exciting stage of its development. BreastLight! The area of anti-infective treatment was an important area three years ago but this is now an even higher priority for Governments and communities. Drug resistant infections are being encountered More on page 2 on an increasingly recurrent basis but the means to contain such infections remain limited. We believe this plays directly to the key strengths of Destiny’s technology capability and that this will soon become attractive to a growing number of large pharmaceutical companies. For the earliest investors into the Portfolio Service, Biotronics 3D (featured on page 3) represents their last investment. It is encouraging that most of these investors are now wishing to extend their investment commitments with Longbow. We anticipate a reduction in investor appetite for risk. However, the longer term nature of venture capital makes this a particularly interesting time, presenting improved opportunities for those with the capital and profile to attract good quality investments. Large companies with global distribution and brands are more receptive than ever to new technologies that can enhance their Longbow Capital LLP (London Office) product portfolios. Picking the right investments remains key, but good exits can be achieved by Julian Hickman companies that have demonstrated initial commercial success. 25 Watling Street, London EC4M 9BR With over 100 private client investors and £14 million of commitments Longbow is expanding Tel: 020 7332 0320 its investment activities at a time when alternative assets, including venture capital, are now Fax: 020 7248 7586 becoming a more widespread. We will continue to build portfolios with a healthcare focus www.longbow.co.uk as we believe the overall growth opportunities remain undiminished in this sector, even in more email@example.com economically challenging times. The Spotlight equity returns will, given a proper period of measurement, outstrip CERNO CAPITAL those of other broad asset classes and that the returns available from venture capital could enhance portfolio returns. For the second James Spence (pictured left) and Nick Hornby (right) give precept to hold true, an investor must hold a diverse number of venture their take on Venture Capital investing. capital investments which should be made through a specialised, professional investment company whose blended portfolio returns CERNO CAPITAL is an independent are likely to be within the top quartile of their peers. wealth management partnership providing advisory and investment We have been investing both personally and on behalf of our clients management services to a small with Longbow for almost three years and will continue to recommend number of individuals, family offices, investments sponsored by Longbow. The dedication of the Longbow educational endowments and partners to their investments has impressed us. We particularly like charities. Nick Hornby, founder their focus on the healthcare sector, where the fundamentals point partner of Cerno Capital comments: to a long and steady secular rise in expenditure. Finally, we like the fact that Longbow’s investment approach stands up on its own “We invest our clients in discretionary merits. Whilst the tax benefits to UK investors under the Enterprise portfolios of long term, specialist Investment Scheme are clear, we always make a point of turning down funds, with the objective of compounding total returns over time. Cerno investment opportunities that are driven solely by tax considerations. Capital provides the infrastructure, access and discretion of a private On this important issue, Longbow has the cart in the proper place: family investment office. All client portfolios are bespoke. As part of trailing the horse.” this service we provide access to selective venture capital investments and Longbow Capital has become an important collaborator in this Cerno Capital was established in August 2008 by Nicholas Hornby area of investment. and James Spence. The only form of investment that makes sense is long-term and the For more information on Cerno Capital please visit inherent attributes that make venture capital attractive to us and our www.cernocapital.com or call 020 7491 5110. clients remain unchanged. This is based on two simple notions: that Company Updates The latest news from our Portfolio companies Polytherics has announced new collaborations with Celtic Pharma, There has been significant improvement in Direct Health’s operating Biocompatibles plc and Alligator Bioscience, a Swedish biotechnology performance over the past six months. It achieved a record month in June company. In May, Polytherics announced the grant of a European patent in both profit and revenue volume terms, which should be sustainable. on the application of its technology to improve drug efficacy. Revenues are increasing to more than £26m p.a. and a new contract tender has been won with Stockton on Tees Local Authority. This is worth circa £500,000 pa initially and has added to a growing presence in the North East. The first half year of trading has seen CyDen’s professional sales division (selling I-Pulse products to spas, salons and clinics) trading in line with its budget forecast. The launch in Boots the Chemist of the consumer model of the i-Pulse is scheduled for early 2009 and the extended lead- Destiny gained some high profile press coverage following the publication in has enabled a rigorous trialling process to be completed and for of results for its XF compound at the Clinical Microbiology & Infection improvements to be made. A separate consumer i-pulse product is now Diseases conference in Barcelona in April. Their nasal decolonisation gel, being developed for direct sales through alternative market channels. XF 73 was found to be effective against the five most common strains of MRSA. Significantly, studies suggest that infections exposed to an XF compound do not readily mutate or develop resistance. This indicates the XF compound could be applied to a number of increasingly common infectious conditions. Destiny raised over £4m (circa £2m from Longbow In June Longbow invested £1m into Domainex alongside The Capital investors) from its existing investors over the summer. Fund who invested £250,000. The investment will be used to expand the contract research business as well as accelerate internal product These funds will be applied to expanding the clinical trial and XF development. Since the investment the technology portfolio has been compound development programmes beyond the end of 2009. added to and its core patent has been granted in Europe. Longbow invested £1.5m in January to develop its technology in two PWB Health Ltd has seen an eventful 2008 so far with the launch of their product areas; non melanoma skin cancer and acne. The design process first product; the BreastLight. Market response has been very positive. is almost completed and commercial discussions with potential partners 79 user-groups have been set up with over 1500 individuals testing the have commenced. product. Longbow Capital also recently completed a £350,000 investment alongside the Scottish Enterprise Co-investment fund. Venture Capital in the Healthcare Industry Both sides of the investment story Company Biotronics 3D Sector Healthcare IT Date Completed 12.09.2008 Investment £1m Biotronics 3D has conceived and developed a technical Pictured left is an example of an image showing calcium build up in the blood and right framework called 3D Net which enhances medical image an internal image of the human abdomen. analysis. The technology enables clinicians to manipulate CT and MRI scans in 3D. The technology also forms the core of other specialised products including virtual Why Longbow? colonoscopy. Biotronics 3D CEO Harry Hatzakis discusses the importance of venture capital for enterpreneurial companies. Why Biotronics 3D? Longbow Partner Edward Rudd explains what is special Why Venture Capital, and why Longbow? The modern health IT industry has in recent years been forced about Biotronics 3D to become global, as a response to the flattening of the world economy. Emerging innovative companies will only succeed in the What impressed you about Biotronics 3D? present economic environment if they fashion their strategies, their Prior to our investment, the company was operating with only six management and their operations in pursuit of a new goal: integration full time employees and had received relatively little funding. Despite of research, development, production and value in the delivery of new this they had developed world class products that were being sold products worldwide. in the US, UK and Japan. Customers and distributors were highly complimentary about the technology, products and support that they The old monolithic multinational that created value in an old hierarchical had received from Biotronics 3D. fashion is dead, mainly because of the fundamental restrictions in delivering innovation in the modern economy. Not since the 19th Why did Longbow choose to invest? century have our systems of innovation and production endured The demand for such products is set to grow rapidly over the next such large and fundamental changes to their architectures. These few years as radiology departments are under pressure to extract changes have provided a great opportunity for smaller companies greater output from their expensive CT and MRI scanning equipment. with remarkable abilities, like Biotronics3D, to adapt to global market By reducing as many as 10,000 images per scan to one 3D image requirements rapidly. diagnosis is made easier, more consistent and, importantly, faster. In Longbow Capital we found a dynamic company, with experience in The founders have proven that they can turn complex technology working with smaller companies in the healthcare sector. We share the into cost efficient, user friendly products, but without investment in same vision of the way healthcare needs to be delivered in the 21st sales and marketing Biotronics 3D would not be able to achieve their century and agree on the ever increasing role of global innovation in potential in such a fast moving environment. Our investment enables that market space. the company to realise this potential and generate a healthy return for doing so. We also realised that Longbow will offer not only capital, but a strong support network for our company (through business support, What do you believe the outlook is for Biotronics 3D? introductions and advice) to further develop and implement a strategy The company recently agreed a collaboration with the institute of Cancer that will increase our company value in the years to come. Research that was looking for a partner to commercialise their MRI oncology intellectual property. Work is already underway to integrate What will the capital be used for? this with 3D Net to create a new product that can help diagnose breast The raised capital will be used to take on key personnel to help develop cancer and I expect this collaboration will extend to other technologies our sales and marketing departments. This will help us achieve a and diseases (such as prostate cancer) in due course. global reach via partnerships with other companies in the world market. Investing in Sales and Marketing will accelerate our brand and Ultimately, I see Biotronics 3D being purchased by a company that product penetration to the international market. This will be pivotal in will benefit strategically from owning such 3D imaging expertise the implementation of our business plan. We anticipate the impact of and products. This might be a hardware manufacturer or a software this investment will lead to the further expansion of product line and company. eventually a portfolio of disease management IT products with an initial focus on breast and colon cancer. A Day in the Life of the BCI: Swansea • Oxford • Tel Aviv THE BCI are on the frontline of innovation, but how do they discover and develop exciting new products and technologies? Louise Bryce, Marketing Manager, explains. The Boots Centre for Innovation is passionate about delivering great health and beauty solutions that help our customers look good and feel great. Our core purpose is to support innovators who are developing new products and technologies within the health and beauty sectors. We can help develop the innovative new product or technology from the original idea to the finished product on the shelf, sold through the vast Boots retail network. So how do we go about harnessing the ideas out there? Here at the Centre we believe the best way is to get out into the world and meet the talented innovators of the future. The BCI team in Swansea We host events regularly all over the world bringing together people and concepts; most recently in Tel Aviv, at Oxford University and at Oxford University, UK home in Swansea. The Centre is currently hosting a series of New Product Innovation Longbow Partner Ron Petersen Seminars with some of the UK’s leading Universities. In June 2008 speaking at the New Product Tel Aviv, Israel we hosted, in partnership with ISIS Innovation, the first free seminar Innovation Seminar 2008 The Boots Centre for Innovation hosted its at the Said Business School in Oxford. The University’s scientists and second New Product Innovation Seminar in June 2008. On this occasion entrepreneurs had the opportunity to learn about the open innovation the location was Israel, with the objective of meeting with innovative model adopted by Boots and key areas of consumer needs identified companies and inventors in our field of health and beauty. by the Centre. Longbow partner Edward Rudd provided an overview of Venture Capital for the group. We deliberately selected Israel as it is one of the most innovative countries in the world, particularly in diagnostics and medical devices. It is also A follow up event took place two weeks later allowing up and coming home to a successful high-technology industry and a young, highly innovators to meet the BCI team in ‘Dragon’s Den’ style where the educated workforce including talented physicians and biologists. innovators were able to pitch their pioneering health and beauty Alliance Boots Health & Beauty experts, alongside Longbow’s Ron concepts. Petersen, presented to 100 delegates discussing market trends and future growth opportunities as well as information on how to access Swansea, UK and work in partnership with Alliance Boots to bring new products to Leading figures in academia, medicine, science and technology visited market. Following the conference, pre-selected entrepreneurs had us earlier this year for the 2015 Healthcare Summit. The event, hosted private meetings with senior managers from Alliance Boots and the Boots by the Centre included presentations and working groups providing the Centre for Innovation where they were given the opportunity to pitch their attendees with the opportunity to share knowledge, views and predictions product concepts. Thirty nine companies put forward proposals on that on a variety of healthcare-related topics. The impact of global trends, day and the BCI are now actively pursuing relationships with many of developments in nanotechnology, current and future legislation and next these companies. generation consumer needs were all hot topics of discussion. The Final Word By Edward Beckett years of the date of the capital gain, therefore this opportunity will last until 5 April 2011. The 2008 Budget reduced the headline rate of capital gains tax (CGT) from 40% to 18% on gains crystallised after 6 April 2008. What is less Alternative assets, including venture capital, will play an increasing well known is that investors can use EIS investments to reduce the role in long term investment strategies and the recent volatility in CGT rate on gains made up to three years previously. equity and fixed income markets highlights the need for investors to diversify across different asset classes. Recent corporate activity Gains made between 6 April 2005 and 6 April 2008 will have been within the healthcare and life sciences markets highlights the charged at a rate of 40%. By investing into EIS qualifying companies, attractiveness of the sector as large cash rich companies continue CGT can be deferred at 40% but so long as the qualifying investment to plug gaps in their product portfolios. We are therefore as excited is held for three years, the original gain will become chargeable at the as ever by investing into emerging healthcare companies and believe new rate of 18%. In this way the investor has reduced the CGT rate that now is an attractive time to be building a portfolio. by 22%. The EIS Qualifying Investment must be made within three Important Notice. This document provides information about Longbow Capital LLP. This document does not constitute an offer to invest in an unquoted investment opportunity or to invest in an unregulated fund. Longbow will not be offering advice and will not otherwise be responsible for providing customer protections in respect of transactions and arrangements proposed in this document. This document is directed only at persons who are classified or capable of classification as intermediate professionals or market counterparties under the Financial Services & Markets Act 2000. This document has been issued and approved by Longbow Capital LLP which is regulated by the FSA.